Economic Justification of SOA Key Results of Joint SAP/University of St. Gallen Research Study
Jan Saat, Institute of Information Management, University of St. GallenStefan Discher, Global Platform Marketing, SAP AG
BITKOM SOA Forum, 28 May 2009, Frankfurt am Main
1. SOA Drivers and Adoption
2. Study Set-up and Business Case Framework Approaches
3. Customer Examples
4. Summary
Agenda
Business Needs in the New Reality Minimizing Risk While Enabling Agility
The right strategy . . . Process innovation enabling strategic business agilityBased on collaborative business networks
. . . Adapted to the new realityShort-term cost reductionIdentification of opportunitiesSpeed of execution and fast ROI
SOA Drivers
SOA Check 2009
Drivers for SOA remain relevant as well in the current economic environment
Source: W. Martin, SOA Check 2009
Higher flexibility
Process optimization
Reduced time-to-market
Higher innovation rate
Increase in productivity
31%
36%16%
8%
Strong SAP Momentum One SOA Infrastructure for Best Practice and Own Practices
Service-enabled SAP Business Suite13,600+ ERP 6.0 customers, thereof 9,400 productive (+84% yoy) 52,300+ productive SAP NetWeaver systems (+47%)2,800+ ready-to-run services 1,000+ SOA roadmaps completed 3000+ people trained on SAP Discovery System (pre-installed SOA system landscape shipped in a box) 330+ SOA reference accounts (http://www.sap.com/platform/soa/customers/index.epx)
SAP delivered on it’s SOA Roadmap
Overall SOA Adoption
SOA Check 20091
(Sample: 111 in GER, AT, CH)Gartner: 2008 SOA User Survey²
(Sample: 200 Worldwide)
„Fifty-three percent of the respondents were already using SOA
in some part of their organizations. Another 25% were not using it but had plans to do so in the next 12
months. Sixteen percent had no plans to use SOA at all.“
2) Source: D. Sholler, 2008 SOA User Survey: Adoption Trends and Characteristics, Gartner Inc. Sept. 26, 2008
Despite the current economic situation and some single analyst statements SOA has become mainstream
1) Source: W. Martin, SOA Check 2009
47%16% 37%
Already using SOAPlanning to use SOA No SOA activities planned
Why doesn‘t your organization currently use or plan to implement SOA in the next 12 months?
“However, conversations with many clients in this state have shown that there is a great deal of confusion about how to construct a business case for SOA”
Gartner Inc. “2008 SOA User Survey: Adoption Trends and Characteristics” by Daniel Sholler, Sept. 26, 2008
Source: D. Sholler, 2008 SOA User Survey: Adoption Trends and Characteristics, Gartrner Inc., Sept. 26, 2008 Percentage of Responds
0% 20% 40% 60% 80%
60%
50%
48%
44%
40%
40%
23%
13%
6%
Lack of internal SOA expertise
No perceived business value in SOA implementation
Lack of skills sets
Cost and/ or resources required to implement SOA
Lack of organizational buy-inSOA is a relatively new/ evolving concept, waiting to
see more industry/ peer-groupSOA seen as too complex
Do not have the need
Don't know
Motivation: Why SOA Business Cases
IT is often lacking in quantifiable benefits to communicate value to the business
Business View
Agility and operational excellence are essential in transformed business networksBusiness does not want to sponsor “pure” IT infrastructure projects Business does not care about technological concept of SOA
IT View
SOA is pre-requisite to meet business requirementsInvestments need to be justifiedROI numbers are elusiveLack in top-level management sponsorship of „SOA projects“
Value oriented
SOA Business
Case
A value oriented SOA Business Case bridges the Business / IT gap -> get commitment and sponsorship
Joint Research Study SAP / University of St. Gallen
Situation as of TodayObservation: in the market: many SOA Projects start without a Business CaseFocus mostly on “learning” the new technology / addressing specific but isolated pain pointBUT: Need for proving value increases rapidly along further SOA adoptionAssumption: There is a difference regarding methodology, structure and tools for SOA business cases compared to traditional business cases for IT projects
Setup of the study:2 phased approach:
Focus on framework validationFocus on quantitative benchmarks
Covering enterprise SOA and “plain vanilla” SOA approaches
Goal of the study:Start with a generic Framework for SOA Business Cases Customer Validation and Benchmarks(as “reusable“ basis for SOA projects, benchmarks and marketing activities)
&
Landscape Modernization(e.g. new consolidation/integration strategies, TCO reduction)UI Simplification (better usability, self-service, UI individualization)Real Time Business Networks(faster and more efficient integration of business partner)Individual Adoption Strategy(Platform decision, Sequential optimization business scenarios)
Strategic Benefits
IT productivity increaseImprove user productivityIncreased flexibility enables faster process optimization (automation, innovation)Faster time-to-marketComplianceFacilitation of post-merger integrationHigher transparencyShared Services offering
Strategic Benefits
All maturity stages covered from introduction (proof of concept) to strategically deployed (SOA Infrastructure)Range from 100 – 2000 deployed services
Different Maturity Levels
Study Participants
Participating Companies
City of Hagen
Different SOA Business Case Approaches Based on Customer Interviews
IT-Centric Approach:Focus:
Business case mainly covers IT-related measures like IT infrastructure and organization
Key Drivers:“Reuse of services” as the most relevant driver for savings Focus on IT efficiency gains like reduced software development cost and reduced software development time
Conclusion:Missing connection between business and IT – SOA benefit hard to communicate
Study results show two different approaches of economic justification of SOA
Business-Driven Approach:Focus:
Enhancing IT-centric approach in showing proven quantifiable benefits on IT and business side
Key Drivers:As a result, the business case was extended beyond “just” SOA -> business process platform business caseComprises IT, business process and strategic benefits
Conclusion:Strong involvement of LOBs - expected value of SOA clear on business and IT side
All SAP customers in the study turn out to pursue the business-driven approach
SOA Infrastructure Business Case FrameworkIT-Centric Approach
CostsOne-time/ongoing costs
Plan, build, run platform & personnel costs
IT Productivity
Organization
Technology Foundation
Organization
BenefitsOne-time/ongoing benefits
IT cost savings / efficiencies
SOAInfrastructure
Business Case
SOA is an IT topic -> business case covers mainly IT related measures (infrastructure / organization)
“Reuse of services” is the most relevant key driver for savings
Focus on efficiency gains like reduced software development cost, reduced software development time
Business Process Platform Business Case Framework Business-Driven Approach
IT Productivity
Organization
Technology Foundation
Organization
BenefitsOne-time/ongoing benefits
Productivity, revenue increase
IT cost savings / efficiencies
CostsOne-time/ongoing costs
Plan, build and run business applications, composites & personnel costsPlan, build and run platform & personnel costs
Business Process
Strategy
Composites / End-to-End Process Integration
Application/Enterprise Services
Business Process Platform Business
Case
SOAInfra-
structure Business
Case
Business-driven approach extends the IT-centric approach by the business view
Benefit and Cost Structure Drill Down to Quantitative Measures
Homogenous Framework for Business Case:Based on results in phase definition of benefit and cost categories Benchmarks: along defined framework to be gathered in phase 2 of this studyStudy available for download: http://www.sap.com/platform/soa/index.epx
Subcategories e.g. Business
Process Productivity
Benefit Metrics and Customer Examples
Benefit Category – e.g. Business Processes
Examples of Quantitative Measurements
Identified Quantifiable IT-Productivity Benefits of SOA
Benefit Category Customer ExamplesDevelopment efficiency/ reusabilityE.g. less interface and functionality development efforts leading to shorter project time, lower project costs, and less testing costs due to reduced dependencies
10% overall development cost reduction50%-70% reusable services20%-30% shorter project duration
Operations/maintenance efficiencyE.g. operations cost reductions and reduced maintenance costs due to consolidation of interfaces, less user support due to UI simplification and empowered users
10%-20% savings in operations
Application life-cycle extensionE.g. cost avoidance of new applications due to extended application lifecycle by wrapping of legacy functionality and reuse in new processes
Extended application usage
ConsolidationE.g. reduced cost by leveraging existing assets and avoiding additional maintenance costs for new equipment
Reduced license costsReduced hardware costsCost reduction by access consolidation to third party-services
Development/test cost reduction due to reusability of services
Suitable benefit metrics:Percentage of overall development costsAmount of reusable services x reusability factor x development costs
Study customer experiences:
10% overall development cost reduction Highest reusability factor of 4 led to 35 Mio. EUR savingsPercentage of reusable services 50-70%20-30% shorter project duration
Identified Quantifiable IT-Organizational Benefits of SOA
Benefit Category Customer ExamplesUser interface simplificationE.g. reduced training costs, fewer skilled employees, and a shift from power user to front-office agents because of simpler and unified UI using Web services
Reduced user training costsIncreased user productivityDecreased cost per transaction
Future proofE.g. access to cheaper open market skills and less external consultancy services by using open standards for the enterprise as a whole
Reduced recruiting, training and consulting costs in the long term perspective
User interface simplificationby using Web services:
Suitable benefit metrics:Reduced user training costsIncreased user productivityDecreased costs per transaction
Study customer experiences:
Customers confirmed that benefit Item. However, calculation of user productivity gains are only possible to calculate in a specific business process context within a business driven approach
Identified Quantifiable Business Process Benefits of SOA
Benefit Category Customer ExamplesBusiness process productivityE.g. process efficiency and user productivity gains through increased process automation, iterative process refinement through decoupling from applications and standardized interface simplification
16% productivity increase due to reduction in required resources for operating a customer service50% personnel efficiency increased in customer administration due to context driven UI and empowered users
Business process qualityE.g. well-defined interfaces, standard based access for users, applications and better process visibility lead to increased process quality with reduced error rate and faster process execution time
Process execution time from 8 days to 60 seconds via new self service with reduced error rateOrder fulfillment accuracy improved 95%–99.8%, which led to a 50% QA labor reduction
InnovationE.g. higher product, service, and process innovation rate due to possibility of sequential innovation and access to alternative process steps, different roles, or multiple channels
50%–66% time savings on order status information due to business process improvement by integration of business partner
InsightE.g. less data collection and reporting effort due to multi-source data and information
30% personnel efficiency increase in accounting due to streamlined accounting
Business Process Productivity Increase:
Suitable benefit metrics:Personnel cost reduction for specific business processesDecrease in cost per transactionHigher revenue due to better customer service, …
Study customer experiences:
16% productivity increase due to reduction in required resources for operating a customer service Increased process efficiency between 10% and 30% due to consistent data and role specific process design
Identified Quantifiable Strategic Benefits of SOA
Benefit Category Customer ExamplesBusiness network transformationE.g. new revenue/higher profit via new business model in a transformed business network
Integration of a new business process outsourcing partner was reduced from more than 3 months to 6–8 weeksSOA as part of the harmonization and standardization contributes to $200 million in savings
Time to market/time to scaleE.g. shorter period of time from product/service idea to market launch
Project time reduction of 30%Significant reduction of time to market
Mergers and acquisitions/divesturesE.g. speed up M&A activities, easier outsourcing/ in-sourcing and thus better negotiating position
IT integrations that take most companies 12–24 months completed within 3 months
Business NetworkTransformation:
Suitable benefit metrics:Increased revenue x EBITDA marginCost reduction (e.g. production, distribution costs etc.)…
Study customer experiences:
Integration of a new business process outsourcing partner from more than 3 months to 6-8 weeks
Establish Customer Portal for Vendor-Managed Inventory – K+S Group
Change in the Salt and Fertilizer IndustryEmerging economies change the competitive landscape in the salt businessCustomers demand fair prices and in-time delivery of salt goods
SOA Value DeliveredSOA helps K+S to overcome process gaps in order to streamline customer relationship processesSOA also allows better transparency and manageability for DSD throughout their replenishment processes. E.g. integration of customer systems via Web services for automatic order proposal when the stock falls below the critical levelWeb services are used to combine the Google Maps UI with customer data about salt depot locationsLeverage SAP's enterprise services for lowering TCO
Implement leading edge customer portalTailor and personalize (self-) service offerings for customersProvide customers with an insight into the order progress and associated documentsInclude Google Maps services into the application to enrich usability throughout the salt ordering process
SOA allows data mash-ups to realized enriched end-to-end business scenarios
SAP NetWeaver PISAP NetWeaver
DSD Application Services GoogleMapsPlatform
Non-SAP
Salt Depot Levels
Non-SAP
Salt Depot Levels
ExternalCustomerSystemsSalt Depot Levels
HTTPSMaster Data
Synch.
DSD
Portal
Web Service / Enterprise Service
SOAP
Traditional Interface (RFC/BAPI)
Customer
Status, DocsReportsOrder Mgmt.Depot Mgmt.SelectLocation
Firewall
SAP CRM SAP EH&SSAP BI SAP CRM SAP ERP 6.0
SAP NetWeaver PISAP NetWeaver
DSD Application ServicesDSD Application Services GoogleMapsPlatform
Non-SAP
Salt Depot Levels
Non-SAP
Salt Depot Levels
Non-SAP
Salt Depot Levels
Non-SAP
Salt Depot Levels
ExternalCustomerSystemsSalt Depot Levels
HTTPSMaster Data
Synch.
Master Data
Synch.
DSD
Portal
Web Service / Enterprise Service
SOAP
Traditional Interface (RFC/BAPI)
Customer
Status, DocsReportsOrder Mgmt.Depot Mgmt.SelectLocation
Firewall
SAP CRM SAP EH&SSAP BI SAP CRM SAP ERP 6.0
Transport Companies Need to Be More Efficient – EMT Madrid (Public Transport)
Change in Public TransportRising costs, especially for fuel, put transport companies under pressureTransport companies need to make their business processes more efficient to save as much resources as possibleCost efficiency is important when reporting to local government about usage of public funds
SOA Value DeliveredAccess to SAP Maintenance, Warehouse, Inventory and Purchasing functionalities from various systemsEfficiency improvement: critical business processes automation and centralizationLow implementation costs due to usage of standard services provided by SAP
EMT Madrid straightens maintenance processGarage utilization optimized lowering costsResources are adjusted much faster where they are neededImportant time reduction on incident resolution
Maintenance process is executed more effective due to better preparation with information right from
the street
Composition Environment
Backend Systems
Maintenance workload and
orders are optimized in
central processes
´Maintenance Process initiated
at bus cockpit
´Smooth process execution due to early information
Assist. Service
Bus Movemen
t
MechanicGarage Foreman
SubmitTime
To WorkOrder
Submit Time
To Work Order
AssignVehicle
MaintenanceOrders
Assign Vehicle
Maintenance Orders
Create Vehicle
Maintenance Request
Create Vehicle
Maintenance Request
Manage Vehicle
MaintenanceRequest
Manage Vehicle
Maintenance Request
CreateVehicle
MaintenanceOrders
Create Vehicle
Maintenance Orders
Defect Notifier
SOA Infrastructure Business Case
Y 2 Y 3 Y 4
$ $ $
$ $ $
$ $ $
$ $ $
Cost Estimation
Hardware/Software Invest
Implementation
Hardware / Software Ongoing Cost
Operations
Y 1
$
$
$
$
Y 5
$
$
$
$
Sum
$
$
$
$
$ $ $Total Cash Outflow $ $ $
-$ -$ -$Net Cash Inflow – Realistic Case -$ $ $
Net Present Value - Realistic Case $
Impact Estimation
Development (Systems/Interface) Cost Savings
Operations Cost Savings
Maintenance Cost Savings
Total Cash Inflow
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Discounting: discount rate x%
Y 2 Y 3 Y 4Y 1 Y 5 Sum
Reinvest Avoidance
External Contractor Savings
…
$ $ $Governance Cost (Services) $ $ $
$ $ $Change Management Costs (IT Organization) $ $ $
$ $ $… $ $ $
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
IT Infrastructure Business Case with SOA specific IT benefit and cost items
SOA savings: Δ to traditional architecture, methods, …
SOA costs: SOA specific TCO calculation
5 years time period, ROI not before 3 years
Cost over benefit ratio increases with amount of services and service reusability
Business Process Platform Business Case
Cost Estimation
Application Software, Composite, Enterprise Services Invest
Implementation (Process Design, PM, Test, Training, ..)
Application Software Ongoing Cost and Operations
Total Cash Outflow
Net Cash Inflow – Realistic Case
Net Present Value - Realistic Case
Impact Estimation
Impact of SOA Infrastructure Business Case
Business Process Productivity Increase
Reduced Error Costs
Total Cash Inflow
Cost Reduction Compliance and Accounting Function
Revenue Increase by New Business Models, Processes
Revenue Increase Due to Shorter Time to Market
Governance Cost (Business Process Management)
Change Management Costs (Organization)
+
Reduced Out tasking/Outsourcing Transition Costs
Cost SOA Infrastructure Business Case
…
Y 2 Y 3 Y 4
$ $ $
$ $ $
$ $ $
Y 1
$
$
$
Y 5
$
$
$
Sum
$
$
$
$ $ $$ $ $
-$ $ $-$ $ $
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Discounting: discount rate x%
Y 2 Y 3 Y 4Y 1 Y 5 Sum
$ $$ $
$$ $ $
$ $$ $ $ $
$ $ $$ $ $
$ $ $$ $ $
$ $$ $ $ $
$ $$ $ $ $
$ $$ $ $ $
+
Business driven approach enriches IT centricdriven approach by business view
Business view:Benefit side: business process, strategic benefitsCost side: application/composite, business process platform costs
First Projects are relatively stronger charged with platform costs than following projects
Time-to-benefit increases with every business optimization project
SOA Business Case Perspectives
Most of the participating companies opt for an integrated business-driven approach covering IT and business benefits because they expect or have already experienced an increased ROI
IT Infrastructure Business Processes Business Model
Increased Return on Investment
Service-oriented Architecture
How SAP's Approach to SOA Improves Return on Investment
Increase & Accelerate Benefits
Reduce Costs1
2$
Time
Compose and orchestrate new business processes re-using SAP’s industry rich platform and best practices across 25 industriesSimplification and role-specific processes for business (not power-) usersManage & deliver informationwith built-in analytics for performance and governance
Built-in business logic and semantics of productized enterprise services can be accessed and used repeatedly in business processesConsistent integration concept (A2A, B2B, UI) to leverage SAP, partner and home-grown solutionsConsolidate & govern IT using an ecosystem of solutions and one natively integrated open platform
Study Customer Quotes
“ Enterprise SOA allows us to drive flexibility and efficiency into our processes. We are now able to provide improved public services and achieve higher efficiency at the same time. For us, enterprise SOA is not only a technology concept but really has strategic relevance for our business.” City of Hagen
“ Service Oriented Architecture is a powerful concept that allows us to increase our productivity dramatically. We achieve 10-20% savings in operations cost and 20-30% shorter project durations within our IT, sometimes even more. Nevertheless this is only one side of the medal. The major benefit of SOA unfolds on the business process side. We achieve increased process efficiency between 10% and 30% and also benefit from improved process quality due to consistent data and role specific process design. This is only possible if you closely align your IT with the business and design services along process needs. SAP’s concept of built-in business semantics into enterprise services is exactly the way how to guarantee this.”
Architecture Planning and Development Service Maps
Competence Center Integration Factory Research Agenda
Develop method support forConsistent modelling of dynamics in EATime based analyses of EAIdentification of necessary elements of time to be modelled in EA in a given situationDefinition of change projects based on EA analyses
Understanding goals in different service categoriesUnderstanding impact on design strategies Understanding the role of structural elements, e.g. Alignment Architecture for agility and sustainability of the entire EA/SOA
Architecture To-Be(Variant 1)
(Variant 3)
(Variant 2)
Project 2
Design Space
Planning Horizon1-2 Years 3-5 Years
Project 1
Design Space
1-6 Months
etc.
Architecture To-Be
Architecture To-Be
Architecture As-Is
… … …
… … …
Business Architecture
IT Architecture
Process P1
Software System S1
P2
S2
… … …
Domain D1Application A1.1 A1.2
Business Service
1.1.1
Alignment Architecture
SoftwareService
1.1
SoftwareService
1.2
SoftwareService
1.3
SoftwareService
1.4
SoftwareService
2.1
ProcessService
1.1
ProcessService
1.2
ProcessService
1.3
ProcessService
1.4
ProcessService
2.1
D2A2.1
Business Service
1.1.2
Business Service
1.2.1
Business Service
2.1.1
… … …
Summary
For the majority of the participating companies investment decisions were not only based on ROI calculations. The strategic dimension and benefits of SOA investments were a strong driver as well
Nevertheless there is a strong and increasing need on customer side for suitable and significant IT and business benefit metrics to justify SOA investments
Most of the participating companies opt for an integrated business driven approach covering IT and business benefits. SOA cost and benefits as part of a broader business process platform business case
ContactJan Saat
Chair of Prof. Dr. R. WinterInstitute of Information ManagementUniversity of St. Gallen Mueller-Friedberg-Strasse 8 9000 St. Gallen, Switzerland
T +41/712243782F +41/712242189
[email protected] www.iwi.unisg.ch / ccif.iwi.unisg.ch
Stefan Discher
Global Platform MarketingSAP AGDietmar-Hopp-Allee 1669190 Walldorf, Germany
T +49/6227/7-56766F +49/6227/78-48747
[email protected] www.sap.com
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